19 May 2009

Poor revenue collections, the unpredictability of donor funds and an economy reeling from the biting global recession -- the challenges for the 2009/10 national budget seem just too much to bear.

After months of wallowing in the global economic crisis, the Government should now be talking about finding a way to fund the next budget and get the economy going.

Early this month, President Jakaya Kikwete hinted at the uncertainty of funds for the budget when he revealed that domestic revenues are expected to continue on the downward path since the global crisis was persisting.

While source of funds for the current budget were considered evasive at a time the crunch had not hit this part of the world hard enough, economists predict the worst is yet to come.

Economists say there would be major problems implementing the Government's financial plan for the 2009/10 year.

This is largely due to the falling revenue collections and the unpredictability of donor support caused by the recession that has adversely affected Western donor countries, they say.

For instance, the depletion of tax revenue this year will see the outturn of the current budget falling to Sh6.98 trillion instead of the planned Sh7.22 trillion.

And budget preparation documents confirm the Government's awkward fiscal position. Some economists have raised concerns that the desire to fulfill political promises would make the situation even more desperate.

Decreasing revenues

In the medium term, the Treasury puts domestic revenue at 17 per cent of the Gross Domestic Product (GDP) in the forthcoming fiscal year from 17.7 per cent in 2008/09 while aid will fall to 8.9 per cent from 9.1 per cent during the same period.

The Treasury asserts that the overall resource envelope in 2009/10 will decrease to 25.9 per cent of the GDP, which is a 0.2 per cent decline compared to the current fiscal year.

"This trend will persist and reach 22.8 per cent in 2011/12, primarily on account of the projected decline in foreign assistance," the document on resource envelope and expenditure reads in part.

It also notes that foreign aid will further plummet in the medium term to 5.3 per cent of the GDP.

2010 Elections

And the 2010 elections will not take the Government out of its tight corners. Instead, they are widely expected to make the financing and management of the forthcoming budget even more difficult.

"Although the elections will come in the second half of 2010, and therefore a subject matter of the 2010/11 budget, they are expected to impact the 2009/10 budget substantially," Mr Honest Ngowi, an economist and lecturer at Mzumbe University, said.

He added: "The Government will naturally want to be voted back into office. As such, among other things, it will have to deliver on its previous election manifesto."

Mr Ngowi says the "unfulfilled promises" are major poverty reduction projects that would require financing from State coffers.

He based his predictions on the economic theory of government opportunism, which states that sitting governments would to do everything in their power to win support before a competitive election.

In the case of Tanzania, he said, the Government would attempt to implement a number of infrastructure, health, education, water and other social service projects in order to win votes, come 2010.

He said the dire situation was evidenced by the failure to meet revenue targets during the current financial year and poor performance of key sectors such as mining and tourism.

Rescue packages?Yet while Tanzania's budget is heavily dependent on donor funding, last year, donor funds for the 2008/09 budget did not come on a silver plate.

Donors clearly spelt out their conditions: governance issues needed to be sorted out first before any funding pledge could be fulfilled.

The donors, probably irked by corruption among senior government officials, were apparently reluctant to release the general support funds.

Most of them had, however, honoured their commitments by February this year.

And once more the Government is expected to get a kick out of rescue packages pledged by the Bretton Woods institutions and other bilateral donors like the US.

Tanzania recently received a $340 million (Sh452.2 billion) fiscal stimulus from the International Monetary Fund (IMF). The World Bank has also promised another bailout package of about $200 million (Sh266 billion).

The major challenge though is how far that crumb of comfort would go to salvage the Government from the 2009/10 budget ordeal.

According to the World Bank economist, the main difficulty faced in financing the current budget was offset by domestic borrowing, which is expected to persist during this coming year.

Excessive domestic borrowing is often said to affect credit lines for the private sector and cause interest rates to skyrocket.

"But borrowing domestically is inevitable, yet it has to be done carefully to avoid a negative impact on interest rates," Mr Zacchia cautioned.

The Government is obviously walking on eggshells before it comes up with a realistic and workable budget amid the global crisis that has started to take its toll on the people.

Key economic sectors stunned by the crunch need to be rescued, otherwise revenue sources will continue to take a nosedive and thousands of people will lose their jobs.

By March, the Tanzania Revenue Authority (TRA) had managed to collect only about 70 per cent of the budgeted Sh4,485 billion tax collections, missing the target for the three quarters by about Sh279.2 billion.

Tax revenue constitutes nearly 95 per cent of the domestic resources that were required to finance government expenditure in the current financial year and about 62.2 per cent of the total budget.

The Bank of Tanzania (BoT) said in a March report the cumulative budget deficit of Sh750.7 billion by February was one per cent above the expected level.

"The (July 2008-February 2009) deficit was financed through foreign borrowing to the tune of Sh674.4 billion, and the balance through domestic borrowing," the central bank noted in the March monthly economic review (MER).